Feb. 19 (Bloomberg) -- China’s stocks rose, sending the
benchmark index to its highest level in two months, as energy
companies rallied and investors speculated smaller banks will
form alliances to expand their business on mobile devices.

The Shanghai Composite Index rose 1.1 percent to 2,142.55
at the close, its highest level since Dec. 18. The gauge has
rebounded 7.6 percent from its Jan. 20 low as record new credit
and improving trade offset signs of a slowdown in manufacturing.
Overnight money-market rates dropped to a nine-month low.

“Internet finance and mobile payment are hot topics in the
market,” said Dai Ming, a fund manager at Hengsheng Hongding
Asset Management Co. “Through these new channels, banks can
expand their customer bases and serve more small and medium
clients.”

The Shanghai Composite is valued at 8.2 times 12-month
projected earnings, compared with the five-year average multiple
of 12.3, according to data compiled by Bloomberg. Trading
volumes in the index were 73 percent above the 30-day average
today, Bloomberg data showed.

Xiaomi Tie-Up

A measure of financial stocks in the CSI 300 climbed 2
percent, the most among the 10 industry groups.

Bank of Beijing surged 10 percent to 7.95 yuan. The lender
signed an agreement with Xiaomi to cooperate on mobile payments,
product customization and channel expansion, the Shanghai
Securities News reported on its website. Both companies will
explore selling wealth management products, insurance and money
market funds on Xiaomi’s mobile platform, the report said.

Citic Bank jumped 10 percent to 5.16 yuan. The stock
climbed 34 percent last week on speculation about cooperation
between the bank, China UnionPay Co. and Alibaba.com Ltd. The
lender denied any tie-up on Feb. 14.

Overnight Rate

The overnight repurchase rate, a gauge of funding
availability on the interbank market, fell for a seventh day,
sliding 28 basis points to 2.4 percent as of 3:26 p.m.,
according to a weighted average by the National Interbank
Funding Center. It’s headed for the lowest level since May 15.

An ample supply of cash offset the impact of the central
bank draining funds. The central bank withdrew 48 billion yuan
($7.9 billion) by selling 14-day repurchase contracts at 3.8
percent yesterday. That was the first repo auction since June.

“Liquidity has loosened recently, bank valuations are low
and investors expect 2013 earnings to be better than their
initial estimates,” Becky Xu, an analyst Shenyin & Wanguo
Securities Co., said by phone.

Liquor Makers

Shares of liquor makers may rise 50 percent as wholesale
prices of Moutai and Wuliangye were stable during the lunar new
year and didn’t decline as expected by investors, Dong Junfeng,
an analyst at China Galaxy Securities Co., wrote in a report
dated Feb. 17. The rebound in liquor makers may continue as
current prices spur consumption, boosting profits, it said.

HSBC Holdings Plc and Markit Economics are scheduled to
release the preliminary manufacturing index, known as the flash
PMI, for February tomorrow. The reading was unchanged from last
month at 49.5, according to the median estimate of 17 analysts
in a Bloomberg survey. A number below 50 indicates contraction.